What‘s in a Name? Is Texas House Bill 100 Really Forced “Pooling”?

“What’s in a name? That which we call a rose by any other name would smell as sweet”. (This situation is more like the star-crossed lovers of this famous passage than you might think; let’s hope this session’s Act III doesn’t end the same way.)

We’ve been called to task because of last week’s reference to HB 100 as a “forced pooling” bill; that it is really about ”fieldwide unitization”. Is there a difference, and does the nomenclature matter? As a matter of oil and gas law, there is a difference. In the eyes of some participants in the business, we aren’t so sure. Let’s discuss.

“Pooling” and “unitization” are analogous and often used interchangeably, but each has a specific meaning. “Pooling” is the joining together of small tracts sufficient for the granting of a drilling permit under applicable well spacing rules. “Unitization” refers to the joint operation of all or some portion of a producing reservoir. Said another way, unitization is the joining together of tracts in order to cooperatively develop all of a part of a reservoir containing hydrocarbons.

Texas already has a forced pooling law of sorts, the Mineral Interest Pooling Act. However, it is infrequently used and has proven to be of relatively little value in everyday practice. The MIPA has also been limited in function to protection of small-tract lessees.

Examples of true forced-pooling regimes are statutes in Louisiana, Oklahoma and other producing states, in which the regulatory power of the state is invoked to establish drilling units for primary production. Texas has no such statute.

HB 100 is essentially a proposal for compulsory unitization to promote and enable secondary and tertiary operations from fields that have been depleted by primary production. This can be seen from the bill itself: “A plan of unitization may be proposed under this chapter only to establish units . . . for unit operations that are reasonably anticipated to substantially increase the ultimate recovery of oil, gas, or oil and gas to greater volumes than would be recovered by primary recovery alone”. § 104.101(a). Moreover, throughout the bill the scheme is referred to as “unitization” which, as we have said, has a particular definition under the law. Pooling is not mentioned.

On the other hand, there are many who will deem participation in a unit under this legislation to be “forced” in the sense that the interests of a working interest owner or unleased mineral owner would be joined together with other tracts without his permission. Whether pooling or unitization, the result is the same: a collective effort by the owner and others to produce hydrocarbons in an arrangement in which he is no longer the “boss” of his property or his operations.

In the end, we agree that HB 100 should be referred to as a bill for compulsory unitization, and not pooling. For some, “compulsory unitization” and “forced pooling” may be a distinction without a difference.

About Charles Sartain

I have been helping clients of all types resolve their commercial disputes for most of my 35 years as a lawyer. Of the many industries in which I have worked, the energy business is the most fascinating… More